Surviving the “Difficult” Times
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It’s often said the secret of managing money is to live as economically the day after payday as you did the day before.
A little common sense and restraint can go a long way towards creating a healthy financial situation. The solution lies in gaining control of your spending and finding an enjoyable lifestyle suited to your income rather than your dreams!
Make a budget
Budgeting is one of the most effective tools for keeping your finances under control.
Take advantage of the free budget planners on the internet and you’ll soon see where you’re spending your money, where you can cut back and how you can pay your debt off quicker.
Budgeting allows you to set yourself goals for how much you want to save and by when. The more realistic and measurable your goals, the more chance you’ll stick to them!
Spend less
To improve your net worth, you need money left over from your pay packet to save, invest or reduce debt. Find ways to keep money in your wallet by going back to the budget and trimming your spending (see ‘Did You Know’ below).
Pay off debts
There is no point saving money in the bank while you have credit cards accruing interest. If you have money to spare, make more than your minimum credit card payment, prioritising the ones with the highest interest rates first.
Also consider rolling your credit card and personal debts into your home loan. By consolidating debt you reduce your short term interest payments, instead paying the debt off over a much longer term.
Go interest-only
Switch all or part of your loan to interest-only. If you’re struggling to meet repayments it is an effective strategy for cutting outgoings in the short term.
Extend term of loan
Extending your loan term by reducing your repayments will also help with immediate cash flow problems. Again, it’s an emergency measure because it equates to extra interest down the track.
Talk to your broker
If you are taking on a new loan, I can help you shop around for the best deal with features that are going to suit your needs.
It also helps to talk to us when times are tough, as we can work together to find a way through your financial difficulty.
Call 1300 133 193
Investment Property Loans
Property investment has been given the thumbs up with the news that rental returns are on the rise.
Investment Property Loans
According to the latest research by leading property information provider, RP Data, four of the seven capital cities are showing an increase in gross investment returns (yields) from residential property.
Of the capital cities that haven’t yet shown an improvement - Adelaide, Brisbane and Melbourne - it is expected they soon will follow the same trend.
The higher the rental yield, the greater the return you can make on your investment property. To calculate rental yield, divide the annual rental income by the purchase price of the property. For example, if you are getting $500 a week in rent for a property you bought for $550,000 the yield would be 4.7 per cent.
There are now around 180 suburbs throughout Australia achieving gross rental yields of six per cent or higher. About a third of these suburbs are in inner city metro areas, while the rest are in regional towns, with coastal areas performing particularly well.
Within metropolitan areas, the best performers are the outer suburbs with good transport links where housing prices are low in relation to the rents being charged.
With rents increasing at the fastest pace in 18 years and vacancy rates sitting at a 30-year low, experts predict continued improvements in rental yields.
Interest Only Home Loans
You may have heard of an interest-only loan and wondered if it is as good as it sounds.
Interest Only Home Loans
As its name suggests, an interest-only loan is a type of loan in which you pay only the interest on the principal balance. This doesn’t mean you will never pay the principal, it simply means that for a set term - usually 5, 10 or 15 years - you can make interest-only payments.
As you are only repaying the interest component, these loans have lower repayments than principal and interest loans. They offer most of the same features as standard loans and their interest rate is dependant on whether your loan is fixed or variable.
Interest-only loans are suitable for any number of applications - from buying a new home or refinancing an existing loan to paying for home renovations or obtaining bridging finance.
Reducing your loan commitments has the advantage of generating cash flow and freeing up your disposable income for other family commitments or alternative investment opportunities.
If you are looking at maximising the tax benefits of property investment you may want to consider taking an interest-only loan, as only the interest portion of your payment is tax deductible.
This type of loan also allows you to buy investment properties with a lower loan commitment. However, you need to consider the risk that the property could decrease in value over the interest only term.
During the interest-only years of the loan, the loan balance will not decrease unless you make additional payments towards the principal. This means at the end of the interest-only period you must repay the principal in full or refinance to another loan.
Keep in mind that interest-only loans require careful management, so are best suited to investors and borrowers with a good head for money. They should only ever be considered a short term option that can be used to your financial advantage.
Contact me if you wish to talk through the pros and cons to work out whether it’s the right loan type for your situation.
Home Loans - ANZ Makes it More Difficult
Today, ANZ have announced a further tightening of lending policy and will no longer approve loans above 90% of the house value.
This is a major contraction and points to more credit “squeezing”, making it harder for new home buyers.
Additionally they have determined to no longer capitalise the Mortgage Insurance Premium, meaning the total loan will be limited to preciseley 90%. For new home buyers planning to apply with ANZ this means they will need an extra 5% PLUS the Premium. On a house value of $400,000, this means about $25,000 extra will be needed.
My thinking is that prospective new buyers should consider getting in sooner rather than later with other lenders before similar contractions are announced by other banks.